Graduating this year? Here's what you need to know about repaying your student loans

More than 200,000 post-secondary students with student loans are due to convocate this spring. And while many may not yet be thinking of repayment plans, experts and recent grads alike say they should be — if they haven't already started.

"I think a lot of students aren't thinking about repayment until they get to the point of needing to repay their loans," said Renu Kanga Fonseca, acting registrar at Victoria College in the University of Toronto.

Kanga Fonseca, whose office provides students with academic and financial advice, says that they encourage students to begin paying down their loans before graduation whenever possible. 

"Not everyone can, of course, but if you're able to, that means that you'll graduate with less debt," she said.

As of July 2022, 1.9 million Canadians owed the federal government a total of $23.5 billion in federal student loans, with an average debt per person of $15,578 at graduation, according to Employment and Social Development Canada (ESDC). Many students also receive additional provincial or territorial loans, which are either separate or integrated with federal loans, depending on the jurisdiction.

The Canadian government eliminated interest on Canada Student Loans and Canada Apprentice Loans this April, indefinitely continuing the interest-free status of federal loans first introduced in April 2021. ESDC says this change will save 1.2 million post-secondary graduates an average of $520 each year.

"I was honestly very happy to hear about it," said Daniel Oeyangen, an account manager for The Knowledge Academy in Toronto, who graduated from the DeGroote School of Business at McMaster University in 2022. 

"You don't really see a difference right away," he said, "but it does make a difference over time for sure."

While Kanga Fonseca considers this an overall positive development, she notes that interest still accumulates in some provincial student loans. 

Given that average tuition costs for the 2022-23 academic year were $6,834 for undergraduate students and $7,437 for graduate students, between one-third to one-quarter of students also have loans from banks or family or friends, according to a 2020 Statistics Canada report. Lines of credit are more common among those pursuing graduate programs.

Kanga Fonseca encourages graduating students to budget carefully to figure out how much they can allocate toward repayments.

Different provinces, different rates

Students have a six-month grace period before beginning repayment on Canada Student Loans. So in most cases, those who completed their studies this April to graduate this spring will begin their payments in November. 

However, some provinces begin accumulating interest on the provincial portion of student loans right away. Ontario begins adding interest at the prime rate (currently 6.7 per cent) plus an additional one per cent. Students from Saskatchewan have the option of paying back their loans at the prime rate, or committing to a fixed rate of the current prime rate plus 2.5 per cent.

In Alberta, students have the option of paying a floating interest rate of the CIBC prime rate plus one per cent, or a fixed rate of prime plus two per cent. However, effective July 2023, the interest-free grace period for students will increase from six months to one year, and both the floating and fixed interest rates will be reduced to the prime rate.

British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador do not charge interest on the provincial portion of their loans.

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The Yukon offers territorial grants but not loans, although borrowers still have to repay their Canada Student Loans.

Quebec, Nunavut and the Northwest Territories do not participate in Canada Student Loans but instead administer student financial assistance programs with federal funding. Quebec begins charging interest at the prime rate plus 0.5 per cent immediately after the end of full-time studies, including during the six-month non-repayment period. Borrowers from Nunavut and the Northwest Territories enjoy six months interest free, after which they must begin repayments at the prime rate minus one per cent.

Those in any province or territory with incomes under a certain threshold may also be eligible for additional aid, such as the federal Repayment Assistance Plan, which reduces or pauses payments for low-income earners.

Planning ahead

While it's important to take a break after graduation, Oeyangen, the recent McMaster business school graduate, says people shouldn't wait too long before looking for work.

"I think everyone is just dying to take time off the second they graduate," Oeyangen said. "I know I did it and it felt good. As soon as that break's over though, just make sure you get to applying [to jobs], because it's definitely a numbers game."

Gurcharn Hoonjan, 23, a counsellor and youth development worker in Richmond and New Westminster, B.C., who graduated from Rhodes Wellness College in August 2022, says that she hopes to see more financial literacy programs to demystify student financial aid.

"There was definitely a lot of stuff that I wished that I was informed about when I was in my grade 12 [year]," Hoonjan said. "Even nowadays, working with kids … I still get kids that are still a little bit confused on life after high school, and going into universities."

Oeyangen recommends incoming students be extra mindful of what they want to pursue.

"I know people that switch degrees, and obviously that's a very expensive thing to do," he said. "Even if it's taking time off school to make sure that's what you want, I would say that's honestly just extremely beneficial."

Kanga Fonseca stresses the importance of creating a budget and sticking to it, revising when necessary if one's financial situation changes. She also emphasizes researching available grants, scholarships, bursaries and loans, and reaching out for assistance as soon as financial challenges arise.

"Unfortunately, we usually hear about them when they're already struggling," she said. "It relieves a lot of stress to plan early and there's certainly more options the earlier you get started."

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